Why millionaires don’t seem to care much about their taxes

January 16, 2013 | Aaron Keating

New study shows tax increases targeting high-income earners have no impact on relocation

A new study shows tax increases targeting high-income earners have no impact on relocation

They may be millionaires, but they’re just like you and me.

Millionaires don’t seem to move around much, even if their taxes go up. When a pair of researchers examined “outmigration” rates in California before and after an income tax increase, they found:

Outmigration among millionaires actually declined after the tax increase took effect, and it declined to a greater extent for those with incomes well above $1 million, who had a much larger share of income subject to the tax. “In other words,” the researchers conclude, “the highest-income Californians were less likely to leave the state after the millionaire tax was passed.” The study also found no change in “inmigration” rates before and after Proposition 63 went into effect, suggesting that the measure’s tax increase did not deter high-income earners from moving to the state. (emphasis added)

Tax decreases don’t seem to have much of an effect either – even on those who are less wealthy, but still well-off:

Varner and Young also examined migration rates after a large personal income tax cut in 1996, when California’s top marginal tax rate dropped for single filers with incomes over roughly $100,000 and joint filers with incomes over roughly $200,000. If tax changes influenced migration, then this tax cut should have provided a greater incentive for high-income earners to stay in California and reduced the disincentive to move to the state. Instead, the researchers found “no consistent effect of the 1996 tax cut.” (emphasis added)

So the next time someone tells you our super-rich “job creators” will leave if their taxes go up – or that we have to cut their taxes to keep them from leaving – remind them wealthy people a) can, by definition, afford to pay more, and b) are probably already living where they want to be, which usually means near their family and friends. Just like you and me, see?:

In the long run, the typical millionaire would have owed an additional tax equal to just one-tenth of 1 percent of her total earnings – a drop in the bucket that likely would be outweighed by the costs of moving out of state. Like most people, high-income Californians tend to be tied to the state by their work and careers as well as by connections to family and friends. To move just to lower one’s tax bill might mean not only giving up the very source of a high income, but also sacrificing important personal ties.

P.S. Go to the other coast (that is, New Jersey) and you see much the same result, as Dylan Matthews points out on Wonkblog:

Roger Cohen, Andrew Lai, and Charles Steindel at the New Jersey Department of the Treasury and Cristobal Young and Charles Varner of Stanford released studies in 2011 and 2012, respectively, evaluating the effects of New Jersey’s millionaire tax, which governor Jim McGreevey signed into law in 2004.

Cohen, Lai and Steindel found that the rate increase caused 25,000 residents to leave the state by 2011, and cost the state about $150 million in tax revenue. But that is dwarfed by the $1 billion the rate increase brought in. The overall revenue effect of the tax, then, is still positive.

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Posted in Tax and Budget

Comments

  1. Whoa! People move someplace to find productive rewarding lives. Then they pay taxes. I remember Bill Gates Sr answering Aaron’s question during our income tax campaign. A reporter asked him if rich people would leave the state. Bill Gates said, “And go where?!?!?!?” As if no other state has taxes.

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